The Sanwa Bank, Ltd. is the world’s most profitable bank and second only to Bank of Tokyo-Mitsubishi Ltd. in terms of total assets. Its surge to the top of the banking world during the mid-1990s has been based on the serious efforts it has made in Japan to contain costs and expand its retail base; expansion into North America in the 1980s; and an early entry into and continued growth of its operations in the nascent economies of Asia. The company’s long-term goal is to become the leading universal bank in the world.

Few other companies in the world have histories as long as Sanwa’s. The product of a merger in 1933, Sanwa’s principal predecessor was the Konoike Bank. The Konoike family enterprise began in 1656 and built a considerable fortune brewing sake. This fortune financed a number of other ventures, most notably a shipping operation. Additional capital generated by these businesses was later used to start a money exchange whose principal business was lending.

Although Japan remained isolated from the world for the next two centuries and commerce there remained limited by traditional practices, the Konoike money exchange gained prominence in the Osaka region. After Japan’s opening to the world in 1868, the government sponsored an ambitious industrialization campaign that brought about a modernization of the banking industry. The Konoike money exchange was awarded a national banking charter in 1877. Over the next several decades, Konoike profited from an expansion in personal income and from the growth of small and medium-sized companies.

Konoike was a small city bank, especially compared to banks affiliated with the zaibatsu conglomerates. It did not engage in foreign activities, even when Japanese commercial interests were extended to Taiwan, Korea, and Manchuria. And although the bank benefited indirectly from Japan’s modernization, it suffered indirectly from financial shocks and recessions caused by government economic mismanagement and uneven industrial development.

In the early 1930s, the bank began to lose ground to the zaibatsu banks, which were closely linked to the rapidly expanding heavy-industry sector. In order to remain competitive, the Konoike Bank merged with the Yamaguchi Bank and the Sanjushi Bank in 1933. After the merger the new entity, based in Osaka and tied to textile production and other light industries, took the name Sanwa (san meaning “three,”wa meaning “harmony”).

The Sanwa Bank had the largest deposits of any Japanese commercial bank. Still, since it was not directly involved in large-scale industrial finance or overseas investments, Sanwa avoided direct confrontation with the militarists who rose to power in the early 1930s. Only after Japan went to war with the United States in 1941 did Sanwa become part of the government’s centralization plan: between 1942 and 1945 Sanwa absorbed an affiliated trust company and several more local banks. When the war ended, however, Sanwa was forced to sell many of its operations under terms established by the occupation authority. Several operations were spun off, leaving the original “harmonious three.”

Most of the largest Japanese banks after the war were former zaibatsu affiliates (although the zaibatsu were officially outlawed, the independent companies they were divided into continued to maintain close relationships with each other). These banks provided much of the financing for large industries. Sanwa, however, was never affiliated with any one industrial group, and in many cases was seen as a competitor not just of the zctibatsu banks, but also of the large industrial companies they were affiliated with. As a result, the bank continued to concentrate on individual banking and the financing of small businesses, most of which were not involved in war production, and so survived the war relatively undamaged.

In 1953 Sanwa adopted a green clover-like symbol as its logo and opened its first overseas office, in San Francisco, in anticipation of the needs of Japanese exporters.

As a growing city bank with a solid account base, Sanwa had greater success winning large corporate accounts. With loans to companies in steel production, shipbuilding, automobile manufacture, and petrochemicals, Sanwa became directly linked to Japanese heavy industry. Japan’s first period of export-led growth, from 1955 to 1965, depended heavily on the development of basic industries. As these industries grew, Sanwa not only recovered its loans, but won further business and, as an investment partner, grew with its clients.

Sanwa redoubled its effort to expand in international banking and, studying the Bank of America as a model, mapped out a strategy for growth in the retail sector. It also moved its center of activity from Osaka to the more dynamic Tokyo. Of the three “Osaka banks” (the others being Sumitomo and Daiwa), Sanwa was most successful in exploiting the growth of the Tokyo market.

In 1959 Sanwa sold its trust operations to the Toyo Trust and Banking Company. The sale was not required by industrial decentralization laws, but was made simply to permit Sanwa to focus its attention on two new financial products: credit cards and leases. It founded the Japan Credit Bureau, or JCB, in 1961, and established Orient Leasing in 1964. Both of these subsidiaries later became the leaders in their markets in Japan.

The bank’s growth during the 1960s was characterized by conservative management and avoidance of high-risk investments. It also benefited early from computerization and “near-banking” activities. Its one notable loss came from its involvement with financially troubled Maruzen Oil, an industry in which Sanwa had little experience. Overall, Sanwa’s expansion paralleled the rapid growth of the Japanese economy.

Sanwa turned its attention to building an international network during the 1970s. With offices in London, Sydney, Singapore, and Hong Kong, the bank served its clients’ needs in a new way. Japanese industry had evolved to a position from which it not only traded in goods, but exported production capacity to less expensive operating environments— particularly in textiles.

The bank entered a new phase of development in the United States in 1972 when it established the Sanwa Bank of California. This subsidiary later acquired the Charter Bank and the Golden State Bank, both in southern California, and in 1978 changed its name to Golden State Sanwa Bank, Continuing its expansion in California—the world’s sixth-largest economy— the bank acquired the First City Bank of Rosemead in 1981. Sanwa’s 1980s activities in the United States peaked in 1986 with the acquisition of Lloyds Bank California for US$263 million. With the deal, Sanwa became the first Japanese bank to acquire a major U.S. bank. Sanwa, meanwhile, opened offices in New York, Chicago, Atlanta, Dallas, Boston, Los Angeles, Toronto, and Vancouver.

As lending and other traditional banking operations became less profitable during the 1980s, Sanwa moved even further into predominantly fee-based near-banking services, notably leasing. In 1984 it acquired a leasing subsidiary from Continental Illinois Bank for US$500 million, one of the largest Japanese takeovers to that date. Within the first four years following the takeover, the renamed Sanwa Business Credit Corporation— which was involved in vendor leasing and corporate, commercial, and direct finance—doubled its business volume to US$ 1.2 billion. Also in 1984, Sanwa entered into a joint venture with Germany’s Dresdner Bank and the Bank of China to form China Universal Leasing Co., Ltd., which became the largest bank-affiliated leasing company in China. Additional leasing operations were subsequently established in Jakarta, Bangkok, Singapore, Kuala Lumpur, and other Asian cities.

The year 1984 was also a key one for Sanwa in terms of its overall management philosophy. That year the bank shifted its primary emphasis from asset growth to increased profits, in fact setting a goal of becoming the world’s most profitable bank. In addition to tightening controls on costs, through cuts in the work force and other strategies, Sanwa shifted its lending practices even more in the favor of small and medium-sized businesses, generally considered less risky than large corporations. By 1988, 73 percent of the bank’s loans went to smaller corporations.

In 1988 Sanwa’s president, Hiroshi Watanabe, initiated another major philosophical change when he scrapped what he considered the wishy-washy aim of becoming known as “the people’s bank” of Japan. Rather, Watanabe preferred a more concrete goal and settled on becoming “the global leader in universal banking.”

In Sanwa’s initial efforts at reaching this lofty goal, its most important actions occurred in Japan and elsewhere in Asia. In its home market, Sanwa had a relatively weak standing in retail banking, with, for example, only 79 branches and subbranches in Tokyo in 1988 compared with at least 140 each for its major rivals. Rather than acquiring smaller banks—as some of Sanwa’s competitors did to their later regret after purchasing troubled banks—Sanwa concentrated on setting up an extensive automated teller machine (ATM) network, which grew to number 653 by 1994. At the same time that this filled the bank’s need for retail banking outlets, it also meshed nicely with Sanwa’s emphasis on profits since 20 ATMs could be set up for the same cost as just one branch, and the employeeless ATMs were much cheaper to operate. Sanwa also pioneered in such profit-smart areas as electronic banking. And, although its desire to expand into financial services was frustrated by the slow pace of deregulation in Japan, Sanwa established a securities operation there in 1994 and a trust business in 1995.

Perhaps even more important for Sanwa in the long run was the bank’s aggressive moves into other Asian markets during the late 1980s and early 1990s. Always the innovator, Sanwa established a branch in Shenzhen in 1986, becoming the first Japanese commercial bank to enter China. True to its roots, Sanwa’s overall strategy in China and elsewhere in Asia was to focus on banking services for small and medium-sized companies, which proved particularly successful in Hong Kong. By 1994, Sanwa’s Asian operations included 18 offices in China and Hong Kong; 18 more elsewhere in Asia; the Shanghai International Finance Company Limited, a joint venture in merchant banking; and its various leasing operations.

Sanwa’s aggressive international expansion had decreased its dependence on the domestic market to a level below that of any of its rivals. In 1994, 32 percent of its revenues and 27 percent of its profits originated outside Japan. Sanwa also weathered Japan’s lending crisis and economic recession of the early 1990s much better than other Japanese banks, and moved briefly to the top spot in worldwide banking in 1995 in terms of assets (the 1996 merger of Bank of Tokyo and Mitsubishi Bank pushed Sanwa down to number two). More important to Sanwa’s overall goal, however, the bank was also able to achieve the top spot in banking profitability in 1995, posting pretax profits of US$572 million.

Heading into the end of the 1990s, Sanwa was not yet the world leader in universal banking, and observers noted weaknesses particularly in Europe. Still, with rapid growth projected throughout Asia for the foreseeable future and Sanwa far ahead of its rivals in these markets, Sanwa was well-positioned to maintain a position near the top of world banking into the 21st century.

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The Sanwa Bank, Ltd.

Unlike many Japanese city banks, the Sanwa Bank places a special emphasis on being the “people’s bank.” But in an era when domestic banking has become highly competitive and international activities are more profitable, Sanwa has gradually begun to cultivate more corporate business. The success of this effort rests not only on the bank’s ability to compete, but on its adaptability. Sanwa’s task is to exploit numerous opportunities in the world market while maintaining its base in personal banking.

Few other companies in the world have histories as long as Sanwa’s. The product of a merger in 1933, Sanwa’s principal predecessor was the Konoike Bank. The Konoike family enterprise began in 1656 and built a considerable fortune brewing sake. This fortune financed a number of other ventures, most notably a shipping operation. Additional capital generated by these businesses was later used to start a money exchange whose principal business was lending.

Although Japan remained isolated from the world for the next two centuries and commerce there remained limited by traditional practices, the Konoike money exchange gained prominence in the Osaka region. After Japan’s opening to the world in 1868, the government sponsored an ambitious industrialization campaign that brought about a modernization of the banking industry. The Konoike money exchange was awarded a national banking charter in 1877. Over the next several decades, Konoike profited from an expansion in personal income and from the growth of small- and medium-sized companies.

Konoike was a small city bank, especially compared to banks affiliated with the zaibatsu conglomerates. It did not engage in foreign activities, even when Japanese commercial interests were extended to Taiwan, Korea, and Manchuria. And although the bank benefited indirectly from Japan’s modernization, it suffered indirectly from financial shocks and recessions caused by government economic mismanagement and uneven industrial development.

In the early 1930s, the bank began to lose ground to the zaibatsu banks, which were closely linked to the rapidly expanding heavy-industry sector. In order to remain competitive, the Konoiki Bank merged with the Yamaguchi Bank and the Sanjushi Bank in 1933. After the merger the new entity, based in Osaka and tied to textile production and other light industries, took the name Sanwa (san meaning “three,”wa meaning “harmony.”)

The Sanwa Bank had the largest deposits of any Japanese commercial bank. Still, since it was not directly involved in large-scale industrial finance or overseas investments, Sanwa avoided direct confrontation with the militarists who rose to power in the early 1930s. Only after Japan went to war with the United States in 1941 did Sanwa become part of the government’s centralization plan: between 1942 and 1945 Sanwa absorbed an affiliated trust company and several more local banks. When the war ended, however, Sanwa was forced to sell many of its operations under terms established by the occupation authority. Several operations were spun off, leaving the original “harmonious three.”

Most of the largest Japanese banks after the war were former zaibatsu affiliates (although the zaibatsu were officially outlawed, the independent companies they were divided into continued to maintain close relationships with each other). These banks provided much of the financing for large industries. Sanwa, however, was never affiliated with any one industrial group, and in many cases was seen as a competitor not just of the zaibatsu banks, but also of the large industrial companies they were affiliated with. As a result, the bank continued to concentrate on individual banking and the financing of small businesses, most of which were not involved in war production, and so survived the war relatively undamaged.

In 1953 Sanwa adopted a green clover-like symbol as its logo and opened its first overseas office, in San Francisco, in anticipation of the needs of Japanese exporters.

As a growing city bank with a solid account base, Sanwa had greater success winning large corporate accounts. With loans to companies in steel production, shipbuilding, automobile manufacture, and petrochemicals, Sanwa became directly linked to Japanese heavy industry. Japan’s first period of export-led growth, from 1955 to 1965, depended heavily on the development of basic industries. As these industries grew, Sanwa not only recovered its loans, but won further business and, as an investment partner, grew with its clients.

Sanwa redoubled its effort to expand in international banking and, studying the Bank of America as a model, mapped out a strategy for growth in the retail sector. It also moved its center of activity from Osaka to the more dynamic Tokyo. Of the three “Osaka banks” (the others being Sumitomo and Daiwa), Sanwa was most successful in exploiting the growth of the Tokyo market.

In 1959 Sanwa sold its trust operations to the Toyo Trust and Banking Company. The sale was not required
by industrial decentralization laws, but was made simply to permit Sanwa to focus its attention on two new financial products: credit cards and leases. It founded the Japan Credit Bureau, or JCB, in 1961, and established Orient Leasing in 1964.

The bank’s growth during the 1960s was characterized by conservative management and avoidance of high-risk investments. It also benefited early from computerization and “near-banking” activities. Its one notable loss came from its involvement with financially troubled Maruzen Oil, an industry in which Sanwa had little experience. Overall, Sanwa’s expansion paralleled the rapid growth of the Japanese economy.

Sanwa turned its attention to building an international network during the 1970s. With offices in London, Sydney, Singapore, and Hong Kong, the bank served its clients’ needs in a new way. Japanese industry had evolved to a position from which it not only traded in goods, but exported production capacity to less expensive operating environments—particularly in textiles.

The bank entered a new phase of development in the United States in 1972 when it established the Sanwa Bank of California. This subsidiary later acquired the Charter Bank and the Golden State Bank, both in southern California, and in 1978 changed its name to Golden State Sanwa Bank. Continuing its expansion in California—the world’s sixth-largest economy—the bank acquired the First City Bank of Rosemead in 1981. Sanwa itself, meanwhile, opened offices in New York, Chicago, Atlanta, Dallas, Boston, Los Angeles, Toronto, and Vancouver.

As lending and other traditional banking operations became less profitable during the 1980s, Sanwa moved even further into predominately fee-based near-banking services, acquiring a leasing subsidiary from Continental Illinois Bank in 1984 which it renamed the Sanwa Business Credit Corporation.

Although well represented worldwide, Sanwa is strongly committed to commerce in the Pacific Rim. It maintains an impressive breadth of vision that has allowed it to remain competitive with the more industrial-based former zaibatsu banks. The bank’s firm grounding in international markets and retail banking should assure its ability to face the challenges of deregulation in the Japanese banking industry successfully.

Citation styles

Encyclopedia.com gives you the ability to cite reference entries and articles according to common styles from the Modern Language Association (MLA), The Chicago Manual of Style, and the American Psychological Association (APA).

Within the “Cite this article” tool, pick a style to see how all available information looks when formatted according to that style. Then, copy and paste the text into your bibliography or works cited list.

Because each style has its own formatting nuances that evolve over time and not all information is available for every reference entry or article, Encyclopedia.com cannot guarantee each citation it generates. Therefore, it’s best to use Encyclopedia.com citations as a starting point before checking the style against your school or publication’s requirements and the most-recent information available at these sites:

Modern Language Association

The Chicago Manual of Style

American Psychological Association

Notes:

Most online reference entries and articles do not have page numbers. Therefore, that information is unavailable for most Encyclopedia.com content. However, the date of retrieval is often important. Refer to each style’s convention regarding the best way to format page numbers and retrieval dates.

In addition to the MLA, Chicago, and APA styles, your school, university, publication, or institution may have its own requirements for citations. Therefore, be sure to refer to those guidelines when editing your bibliography or works cited list.